ADVANCE POWER DISPLAY SYSTEM LTD.,MUMBAI vs. COMMISSIONER OF (A)-55, MUMBAI

Vide letter dated 04.03.2021, the assessee has raised the following additional grounds: 1.1 In the facts and circumstances of the case and in law, the order passed by the learned Deputy Commissioner of Income Tax – 9(1)(1), Mumbai [“the AO” for short] u/s 143(3) rws 254 of the Act and as upheld by the Ld. Commissioner of Income Tax (Appeals)-55, Mumbai [“the CIT (A)” for short] is bad in law and void. Assessment Year: 2008-09 1.2 While so upholding the order of the Ld. AO, the Ld. CIT (A) erred in not appreciating that it was mandatory on the part of the Ld. AO to pass a draft order as contemplated u/s 144C of the Act in the first instance and only then the final order could have been passed failing which the final order passed is bad in law and void.

In Ground No. 1.2, assessee has raised a legal issue challenging the validity of the assessment order passed under section 143(3) r.w.s. 254 of the Income Tax Act, 1961. Since, the aforesaid issue raised by the assessee is a purely legal and jurisdictional issue going to the root of the matter and can be decided based on facts available on record without requiring investigation into fresh facts, we are inclined to admit the additional ground for adjudication.

Briefly, the facts necessary for adjudicating this issue are, the assessee is a resident company. For the assessment year under dispute, assessee filed its return of income on 28.09.2008 declaring total income of Rs. 3,92,20,450/-. Since, during the year under consideration assessee had entered into international transactions with its Associated Enterprise (AE), the Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the international transactions. While determining the ALP, the TPO proposed an adjustment. The adjustment proposed by the TPO was added to the income of the assessee in the draft assessment order passed under section 144C(1) of the Act. Against the draft assessment order so passed, assessee raised objection before learned Dispute Resolution Panel (DRP) and being unsuccessful, preferred further appeal before the Tribunal. While deciding assessee’s appeal in dated 29.11.2013, the Tribunal set aside the issue relating to the Transfer Pricing adjustment back to the AO for afresh adjudication. The AO again referred the matter to the TPO to carry out the direction of the Tribunal. Assessment Year: 2008-09 Though, the TPO partially reduced the adjustment made earlier, nonetheless, he again proposed an adjustment to the ALP. Based on the adjustment proposed by the TPO, the AO has passed the impugned assessment order under section 143(3) r.w.s. 254 of the Act adding back the adjustment proposed by the TPO.

Shri Y.P. Trivedi, learned senior counsel for the assessee submitted, instead of proposing a draft assessment order in terms of section 144C(1) of the Act, the AO has passed a final assessment order. Thus, he submitted, the AO having not followed the statutory mandate of section 144C, the assessment order is invalid. In support of his contention, learned senior counsel relied upon the following decisions:

Learned Departmental Representative, though, agreed that the issue raised in the additional is covered in favour of the assessee by the decision of the Hon’ble jurisdictional High Court in case of Dimension Data Asia Pacific Pte. Ltd. vs. DCIT (supra), however, he relied upon the decision of learned Commissioner (Appeals).

We have considered rival submissions in the light of decisions relied upon and perused the material on record. The short issue arising for consideration before us is, whether the impugned assessment order passed by the AO without proposing a draft assessment order makes it invalid. Undisputedly, during the year under consideration, the assessee had entered into international transaction with its AE. As per sub section (1) of section 144C of the Act, if the AO proposes to make any variation to the income of the assessee which is prejudicial to assessee’s interest, then, he has to forward a Assessment Year: 2008-09 draft of the proposed order of assessment. It is to be noted that sub-section (1) of section 144C begins with a non-obstante clause, thereby, overriding all other provisions of the Act. Undisputedly, the conditions of section 144C(1) of the Act are satisfied in case of the present assessee, as, the assessee has entered into international transaction with the AE and there is a variation to the income which is prejudicial to the interest of assessee. In fact, initially, based on the adjustment proposed by the TPO, the AO had framed the draft assessment order and ultimately the Tribunal restored the issue back to him. However, though, the TPO again proposed adjustment and there is a variation to the income of the assessee which is prejudicial to its interest, the AO without following the mandatory provisions of section 144C(1) of the Act has proceeded to pass a final assessment order making the addition proposed by the TPO. 8. Thus, there cannot be any doubt that the AO has not followed the statutory mandate contained under section 144C(1) of the Act. Keeping in view the aforesaid factual position, it has to be decided whether the assessment order so passed is valid in the eye of law. Undoubtedly, by not proposing a draft assessment order, the AO has effectively denied the assessee the remedy available under the statute of raising objections before the DRP. As we find, while deciding identical nature of dispute involving similar facts, the Hon’ble jurisdictional High Court in case of Dimension Data Asia Pacific Pte. Ltd. vs. DCIT (supra) has held that assessment order passed in violation of section 144C(1) is invalid. The Hon’ble Delhi High Court in case of Turner International India (P) Ltd. vs. DCIT (supra) has expressed same view. Thus, respectfully following the binding ratio laid down by the Hon’ble jurisdictional High Court and other High Courts, as referred to above, we hold that the impugned assessment order passed under section 143 (3) r.w.s. 254 of the Act is invalid. Accordingly, we quash it. This ground is allowed. 9. In view of our decision above, the other grounds having been rendered academic, do not require adjudication. 10. In the result, appeal is allowed as indicated above. Assessment Year: 2008-09 Order pronounced in the open court on 6th August, 2021. (PRAMOD KUMAR) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 06/08/2021